London-based early-stage VC Episode 1 is announcing the £76m close of its third fund. It’ll invest in mostly UK-based B2B startups.
The money came from British Patient Capital — the biggest investor in the UK startup ecosystem and a key backer of both VC funds and startups — and the government’s defence tech-focused National Security Strategic Investment Fund (NSSIF). VC firm and fund of funds Molten Ventures also invested.
Where will the money go
Episode 1 will focus on investments into B2B startups in AI, techbio, open-source, software infrastructure, healthtech and marketplaces.
Previous investments include car marketplace Carwow, logistics platform Huboo and legaltech startup Robin AI.
Alongside startups in the UK, the fund is also open to backing US and European-based companies that have a UK footprint.
It’ll write 10-15 cheques a year of between £250k and £3m for pre-seed and seed-stage deals, with around a third of the fund reserved for follow-on deals up to Series A. It’s already made 16 investments from the new fund.
Data-driven deal sourcing
Episode 1 is just one of a number of VCs starting to invest heavily in using data to scoop up deals before anyone else.
The firm has a proprietary data platform that sources thousands of new businesses — from several places like Companies House, LinkedIn and GitHub — each week and has begun to use generative AI models to quickly whittle the list down to fewer than 100 potential investment candidates.
There are 50-60 variables Episode 1 uses to evaluate each company, including things like company background, fundraising history and founder background.
What gives Episode 1 an edge over other VCs beginning to take an interest in data-driven deal sourcing is that it’s building its own models in-house, says general partner Hector Mason.
“A lot of [VCs] are using off-the-shelf software, like Specter and Open Scout,” he tells Sifted. But the problem with using that type of software is that everyone sees the same companies, he adds.
“We’re hearing more and more often that we are the first VC conversation a founder has had,” says Mason.
The investment in the data side of deal sourcing — the firm has two full-time data scientists and a data engineer — has begun to pay off. About a quarter of the investments made from Episode’s 1 new fund were sourced by its data platform.
Founders funding VCs
While this fund is Episode 1’s largest to date, raising above the £75m target it set when it went to market, it’s been a difficult journey, says Mason.
“We had a number of [potential] LPs and funds of funds who couldn't raise their own funds, so that made it harder,” he tells Sifted.
So the firm turned to operators who’d recently sold secondaries. Over one-third of Episode 1’s LPs are former or current founders, including beleaguered car marketplace Cazoo’s former CEO Alex Chesterman. 21 founders previously backed by Episode 1 also stumped up cash.